Markets look for lots of action in President Trump's first week

Donald Trump finally has the power of the presidency and markets are braced for lots of action.

Expectations are high for a flurry of excitement and activity from Washington in the week ahead as President Trump gets to work. But markets probably will not yet get much in the way of clues on how quickly the new administration will push the tax and growth policies that have driven both stocks and interest rates higher.

Trump is expected to make the repeal of Obamacare a priority. He is also seen moving quickly on the topics of trade with Mexico, immigration and regulations in areas like energy. However, it's less likely that there will be much new on the programs markets care about most since they also must wind through Congress.

As traders fixate on Washington, there are also about 20 percent of the S&P 500 companies reporting in the coming week, including Alphabet (GOOGL), Boeing (BA), Caterpillar, (CAT) Microsoft (MSFT) and McDonald's. (MCD) Of the S&P companies already reporting, 65 percent have beaten earnings estimates, and earnings growth based on the reports and estimates looks to be 6.5 percent for the fourth quarter, according to Thomson Reuters.

Traders had hoped Trump would play up the pro-growth agenda during his inaugural address Friday . Instead, he focused on the theme of putting America first in a speech that had a strong protectionist ring.

"I expect volatility to be a little bit higher in the first 100 days than it was in the last part of 2016, when there was a sigh of relief and focus was more on the macro and the hopes for the macro," said Kate Moore, BlackRock chief equity strategist. "We're going to have a lot more volatility, as some of this policy gets ironed out and we get more clarity."

She said it could take a while to see what tax reform will look like.

"I think we will get a little more clarity and then it's very likely we will have a slightly better road map when it comes to taxes over the next two months. I think that's going to be hugely important. We will have more comments and certainly more sense of the road map when it comes to trade," she said.

Moore said one of Trump's most important comments in the past week was that the dollar is too strong . A strong dollar hurts corporate profits and hurts emerging markets.

"The main takeaway I had from Trump and his comments on the dollar … was an acknowledgment that we don't want the dollar to be too strong, going into trade negotiations," said Moore. She said long dollar is a very crowded trade and she does not believe it will appreciate as much as many expect. That's simply because the global is improving and differences in monetary policy and growth between the U.S. and other regions won't be as great.

Moore said she's neutral on U.S. stocks and would become more bullish if earnings continue to improve and there's more clarity around policy from Washington. She said there is a lot of reason for more dispersion on stock performance. "It's going to be from growth, inflation, policy and [Trump's] tweets and very likely how effective companies have been in containing their costs and managing to maintain their margins at this point," she said. "It seems to me there are a lot of reasons for differentiation at this point."

Stocks in the past week were flattish, with the S&P 500 down 0.2 percent at 2,271, and the Dow (Dow Jones Global Indexes: .DJI) was about 0.3 percent lower at 19,827. Treasury yields had a big move in the past week, with the 10-year (U.S.:US10Y) nearly touching 2.30 percent and rising to 2.50 percent by Friday.

Moore likes small caps and also emerging markets. "I think the fears of a trade war are overblown. It's one of the reasons we continued to be maintaining a constructive outlook for emerging markets," she said.

She said Trump's inaugural comments Friday were "downbeat" and it was disappointing that he pointed to problems in the economy when there is near full employment and earnings growth is picking up.

The fact Trump's comments sounded protectionist unsettled some in the markets who were hoping he would sound more traditional and not as if he could start a trade war. Economists put trade concerns at the top of the list of what could change the growth outlook.

"By far the number one issue on the global economy in the next year is how far down the path of trade tensions do we go here, and mixed into those is also geopolitical tensions as well. So do we have a gradual process, where there's some concession on all sides and things will move smoothly, or do things get very heated and people start to worry about serious back-and-forth tariffs?" said Ethan Harris, head of global economics at Bank of America Merrill Lynch.

Trump is expected to open talks with Mexico and Canada on the North American Free Trade Agreement, which has been in place since the 1990s. He has called for tariffs on Mexican produced goods though he is not expected to take any action yet. Mexico's president called a press conference on Monday at which he is expected to discuss trade with the U.S.

Harris said it will be important to see how Trump deals with China. Trump in the past week said he would not label the country a currency manipulator right away, as he threatened, and that he would speak to Chinese officials first. Harris said China has been trying to prevent its currency from falling, not pushing it lower.

"Certainly Trump is going to want to do something that gets China's attention … something that kind of jolts the negotiating process," he said. "I don't know whether that will be what he does out of the gate. It could be after he waits for some of the other stuff like the Affordable Care Act to go through. I think it's a first 100 days story."

For the U.S. markets next week, Harris said fourth-quarter GDP released on Friday will be important. He expects growth of 2.4 percent, a bit higher than consensus.

"Basically if you look at the broad data story right now, the economy is showing a little sign of picking up. Confidence is picking up. Some of this is optimism is about fiscal policy and deregulation, and some of this was already happening in the data before the election," said Harris. He said Trump has so far been a positive for the economy and now risks being negative if he is too aggressive on trade.

"He's taking over at a pretty good time. The economy is at full employment, wages are beginning to accelerate. You're not in a world where the Fed has to tighten too quickly. It is a positive way to start," Harris said. "Right or wrong, a president gets credit for the economy. He is inheriting a good economy. Obama inherited a disaster."

Moore also said the economy was already kicking in to a better gear before the election.

"We actually think growth and reflation and momentum started before the U.S. election. The market acknowledged the momentum, and that turning point was super charged by the U.S. election," she said.

She's looking to hear more from Trump on his plans. "It was not perhaps the most optimistic presidential speech I've heard. I think the real key is how Trump and his cabinet pivot to be truly looking forward instead of just criticizing what has and hasn't' happened and perceived weakness in the U.S. economy," she said.

What to Watch

Monday

Earnings: McDonald's (MCD), Yahoo (YHOO), Halliburton (HAL), Brown and Brown, Zions Bancorp

Tuesday

Earnings: 3M, (MMM) Johnson and Johnson (JNJ), DuPont, Alibaba, SAP, Travelers (TRV), Verizon (VZ), Corning, DR Horton, Kimberly-Clark,Lockheed Martin (LMT), AK Steel, Janus, Samsung Electronics,Texas Instruments (TXN), Alcoa, Capitol One (COF), Seagate

8:30 a.m. Philadelphia Fed non manufacturing

9:45 a.m. Markit manufacturing PMI

10:00 a.m. Existing home sales

Wednesday

Earnings:Boeing, (BA) United Technologies (UTX), Abbott Labs, Freeport McMorRan, (FCX) Hess (HES), Illinois Tool Works, (ITW) Textron, AT&T (NYSE: T), eBay, Qualcomm, Citrix, WW Grainger, Las Vegas Sands, Cullen/Frost Bankers,Murphy Oil (MUR), McKesson, Norfolk Southern

9:00 a.m. FHFA home price index

Thursday

Earnings:Intel, (INTC) Microsoft (MSFT), Alphabet (GOOGL), Caterpillar (CAT), Comcast (CMCSA), Dow Chemical (DOW),Ford, (NYSE: F) Fiat Chrysler, Unilever, Biogen, Northrop Grumman (NOC), Blackstone, Praxair, Potash, Alaska Air, PulteGroup (PHM), LM Ericsson, LVMH, (Euronext Paris: MC-FR) Raytheon (RTN), Southwest Air, Stanley Black & Decker (SWK)

8:30 a.m. Jobless claims

9:45 a.m. Markit services PMI

10:00 a.m. New home sales

Friday

Earnings: Chevron (CVX), Colgate-Palmolive, (CL) Honeywell, American Airlines (AAL),General Dynamics (GD), Air Products

8:30 a.m. Durable goods

8:30 a.m. Q4 Real GDP

10:00 a.m. Consumer sentiment